Quants worth following: Kyle Benton

"Quants worth following" is our latest interview series highlighting thought leaders in the quantitative trading industry actively sharing their knowledge and resources with the community. In this edition, we spoke with Kyle Benton, a seasoned trader and quantitative analyst with over a decade of experience in the quant industry.

Since 2015, Kyle has been a Quantitative Trader at DV Trading, wearing multiple hats as a researcher, trader, and developer within his position. More recently, he has entered the venture capital realm by launching Lunar Capital, a venture studio focused on Web3 and digital assets.

Kyle delves into his journey as a quant trader and his rise to celebrity status in crypto, where he took bold risks that garnered significant attention. He shares firsthand experiences, lessons learned, and insights into his latest venture.

"My focus has been primarily on futures, but I've also traded and managed option portfolios. My asset class specialty over the years has been energy futures—e.g., crude and refined products (WTI/Brent, RBOB, HO) and natural gas; however, as of late, I've focused my attention on the US equity futures complex (ES, RTY, NQ, YM), VIX, and US treasury futures complex.

I've applied my trading acumen to cryptocurrency markets to identify the opportunity sets that exist—this led me to a handful of automated and systematic trades both on-chain and off-chain."

Kyle's interest in quant trading blossomed from a blend of his passions, rooted in a fascination with computers since his early years.

"In third grade, my teacher gifted a classic 5.25" floppy disk containing the game Oregon Trail. My grandfather's office had just replaced their legacy computers in favor of a newer model. Thinking of me, he brought one home. I received a 'junk' computer that was coincidentally able to run the 5.25" floppy standard just as computers were starting to pivot to the 3.5" floppy standard.

Eager to play the game, I took the floppy disk home, and in my rushed attempt to install it, I actually formatted the floppy! This trauma led me to a deep exploration of all things computer hardware and software-related."

In his early years, Kyle achieved several milestones. He learned Turbo Pascal in the fourth grade, built his first PC at age 13, and founded CompuHeal—a computer repair, networking, and consultancy business—by the time he was 16, serving approximately 250 customers by his senior year.

During this phase, Kyle developed an interest in investing, delving into books such as Benjamin Graham's The Intelligent Investor: The Definitive Book on Value Investing, all the while discovering his passion for mathematics.

"I also started really getting into math, a topic I was always innately good at, but I struggled to find a great teacher who made me passionate about it. Fast-forward several years. I found a great math teacher who showed me how fun math could really be. I pushed the pedal to medal and eventually received a dual degree in Math and Finance from the University of Illinois Urbana-Champaign (UIUC).

To my surprise, I realized I was more interested in computer science and engineering, so I started signing up for engineering extracurriculars at UIUC. They had the National Organization for Business and Engineering (NOBE), and one that really stuck out in my mind was the Financial Engineering Club.

It became clear that although I could program, I wasn't a software engineer and had gaps in my understanding of computer science. Many of the club members were hoping to land careers in quantitative trading. After a bit of research, and to my delight, quant trading seemed to combine my love for finance, math, and computers into a single field. The rest is history, as they say."

Before gaining prominence in the crypto space, Kyle's serious involvement with cryptocurrencies began in 2017, when his firm started aggressively investing in several digital assets. Before that, his crypto exposure was primarily through Bitcoin's use on the darknet and Dogecoin being given as tips on Reddit.

"Seeing that my firm was seriously investing in crypto, I decided to dive deeper. I went through the top 50 cryptocurrencies and read their whitepapers—I was pretty much hooked at that point. I started allocating capital into crypto, but it wasn't until a year later that I dived into the technical aspects of the coins I was investing."

Kyle began learning the programming language Solidity to develop smart contracts on Ethereum after one of his deployed smart contracts got hacked. This incident prompted him to delve deeper into smart contract security and auditing.

"I completed OpenZeppelin's 'The Ethernaut,' a Web3/Solidity learning platform that guides users through about 30 common vulnerabilities found in smart contract logic. Simultaneously, I forked the repo and started dissecting Geth, the predominant node software in the Ethereum ecosystem (also known as Go Ethereum). Here, I really started learning about the gossip protocol and realized Ethereum has a mempool that is publicly accessible and allows one to see transactions before they actually land on the chain.

During Ethereum's earlier proof-of-work (PoW) era, block times varied widely, ranging from 0 seconds to 4 minutes to solve. Transitioning to proof-of-stake (PoS), Ethereum achieved more consistent transaction times of approximately 12 seconds with minimal variance. Compared to low-latency trading, this was effectively an eon."

Lately, Kyle has been focusing on MEV (Maximal Extractable Value).

"On Ethereum, transactions are ordered by gas price. By paying one gas price unit more than another transaction, you can place yourself in front of transactions (frontrun). Conversely, choosing a lower gas price, or the same gas if you're slower since it's a FIFO (first in, first out) system, allows you to place yourself behind a specific transaction (backrun). This creates unique opportunities that can be capitalized on by being able to effectively choose the order of transactions—aptly described as MEV."

"The market is evolving and maturing to match traditional finance in many ways—primarily via the creation of derivative products like futures, perps, and options, which bolster the liquidity of the underlying product and create opportunities to earn yields on assets (think basis trades).

Similarly, in the world of decentralized finance (DeFi), you can become a liquidity provider (LP) by posting liquidity in Automated Market Makers (AMM) pools on platforms like Uniswap and SushiSwap. Being an LP allows the person LPing to earn on each swap that happens in a specific pool, e.g., WETH/USDC—the LP earns a fee for every swap in the pool (e.g., 0.3% on notional value swapped on Uniswap V2). New tokens are constantly launching, so it's possible to get involved in tokens similar to an IPO in traditional equities, which coincidentally led me to my newest venture, where I want to be an investor in the angel/series A rounds for upcoming tokens. Since I've traded highly liquid and illiquid cryptos, I would say my view is that crypto trades more like an OTC/penny stock than like a fiat. My observation is that meme coins trade like call options with massive theta that force prices to 0 in minutes to hours."

"One form of MEV I've been aggressive in pursuing is token sniping. The goal is to be the first or amongst the first to buy a new token on launch—effectively a backrun.

There have been a handful of articles written about traders paying ridiculous fees to ascend to the top of blocks. In my case, in one of these transactions, I ended up spending 65 ETH in gas to bribe my way into the first few transactions of a token launch. I bought 80 ETH of this token and bribed 65 ETH in gas; a lot of articles, tweets, and Reddit threads started popping up that thought it must have been a mistake or that I was on the team and trying to get attention on the token; but it was simply just an opportunity to get in early on a really hyped token launch. With that specific snipe, I was able to get a 2x profit in a day; since addresses are tracked on the chain, my name has gained quite a bit of notoriety and has connected me with lots of interesting people—people who do similar things or are technical and trying to learn to do similar things."

Drawing from a background of taking risks and exploring diverse ventures, Kyle reflects on two valuable lessons he's learned:

"By digging deep into new technologies where there isn't a defined path or where everyone is sort of more or less equal in terms of their understanding—all sorts of opportunities reveal themselves. For instance, in trading, a lot of the ways of looking at the market and for trades are similar— trading strategies are taught and replicated across traders as traders move firms or start to trade on their own.

Edges in traditional markets start to disappear as more people crowd into a trade. If you identify cryptocurrency as having a lot of similar attributes to traditional markets—with additional layers of technicalities—you might be able to apply the same toolset/lens to the problem and come up with similar strategies that not many other people are doing because the technology is still very nascent and not well understood.

You might also identify that you have a strong quantitative toolset that, if applied with the same rigor on a new idea, may reveal lots of opportunities. Even though others learn fast and technology moves fast, there are pockets of time where learning and applying knowledge early creates outsized opportunities."

"I hear a lot of great ideas, but they stop at the idea phase because the idea may risk failure. For me, the pinnacle of success is taking risks—albeit hopefully calculated risks. What I've learned when it comes to actually turning an idea into something tangible is that a lot of the ideas often have tons of upside with much less or no downside risk, sort of like a call option. I would encourage others to take bets like these frequently."

Kyle's involvement in the crypto ecosystem opened doors to investing in angel and seed rounds of numerous Web3 and digital asset-related companies, ultimately paving the way for launching his venture studio, Lunar Capital.

He explains his motivation for starting the studio, seeing it as an opportunity to introduce investments that traders might otherwise overlook.

"Often, the VCs that sit on the cap table are inert. By taking a more active role with portfolio companies, the dollars we invest become more compelling. We see it as a win/win because not only do we get to invest in great ideas and people, but we also have the opportunity to make the idea better; overall, we have the chance to improve success in doing so."

Specializing in early-stage investments, Lunar Capital also provides advisory and guidance on project technicalities and go-to-market strategies within the Web3 and digital asset space.

"Our goal isn't to change the founder's idea but to provide constructive criticism and insights where we can add value. We also provide advisory services outside of making investments, so if it's not writing a check, we are more than happy to apply our technical acumen to more mature companies; this spans liquidity provisioning, technical solutions, product design and analysis, and fundraising."